PART 3 - TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

The household loans are typically divided into the following categories:

1)      Housing Loan

2)      Motor Vehicle Loan

3)      Credit Card Loan

4)      Personal Loan

5)      Furniture and Household Items Loan

Housing loans and car loans are the major contributors to the household debt which is understandable given the relatively young population. The lure of “attractive” (low) interest rates managed to soften the impact of the high price of houses and cars which has escalated over the years. The mix of high interest rates and high prices of these two necessities would cripple demand and is not good for the economy. Malaysians has been "enjoying" low interest rates for several years already which has largely contributed to the huge debt bubble.

Credit card debts can be seen as a “side loan” or “supplementary loan” (in the beginning) to cater for petrol expenses and groceries and even dinner at “selected” restaurants when money (from wages) runs out especially after the inflation rate has gone up since January 2014. Of course there those who use credit card to satisfy their “compulsive shopping” habits while digging their financial freedom away. Personal loans are normally used for investment purposes in order to ease their financial burden or simply to cover for their already mounting debts scattered like birds’ droppings.

Personal loans are also used for glamorous engagement and wedding ceremonies successfully propagated by local celebrities which is the trend nowadays in order to “keep up with the Joneses”. This is a recipe for disaster especially if the newlyweds previously had student loans before (called PTPTN here).

After marriage, loans for furniture and fittings as well as electrical goods are easily available through companies like Courts Mammoth, Aeon Credit and Seng Heng with incredible offers like “you will only pay three months later” or “celebrate your Eid or whatever first and pay later” and of course with credit card type interest rates. Another recipe for financial calamity.

So there you are. The various types of debt in the household debt stockpile. Sorry for the long introduction because it has to be done to have a clear understanding of the types of debt involved and you will see the reason behind this as we go along in line with the topic “Debt Collection Agencies – The Collection of Current and Bad Debts”. So bear with me.

With all the monthly loan commitments, some are doing okay with their current income, some are  merely surviving which is not bad but many have to resort to juggle their expenses or juggling their time to earn extra income through side business or part time jobs. Some are committing financial suicide by juggling their credit cards or alternating their monthly payment (pay housing loan, miss the car loan or other loan and change the order of payment next month) so that they are always “on the edge” with regards to legal action.

If everything is stable which means if all prices of goods and services are “static” with no major changes, then well and good. But we are living in a debt based economy where inflation is a necessity. Dependency on the US Dollar as “THE” reserve currency goes to show how precarious is our position now as an economic calamity can happen at any time.

Domestically, the government burdened with debt would have no choice but to reduce subsidies for petrol and other essential items resulting in escalating prices for most food items, services and utilities across the board. This is where the pressure to keep on paying the monthly payments becomes unbearable and eventually loan defaults becomes inevitable. Those in the “I’m okay” and “I have no problem so far” are also affected. Those “I couldn’t afford it, but I want it anyway” group are already in the financial pit of no return.

END OF PART 3

NEXT: PART 4 - TYPE OF LOAN DEFAULTS